Bill Summary for S 322 (2021-2022)

Summary date: 

Apr 29 2021

Bill Information:

View NCGA Bill Details2021
Senate Bill 322 (Public) Filed Thursday, March 18, 2021
AN ACT TO UPDATE THE REFERENCE TO THE INTERNAL REVENUE CODE; TO MAKE VARIOUS TECHNICAL, ADMINISTRATIVE, AND CLARIFYING CHANGES TO THE REVENUE LAWS AS RECOMMENDED BY THE DEPARTMENT OF REVENUE; TO REDUCE THE IMPACT OF THE FEDERAL STATE AND LOCAL TAX DEDUCTION CAP; TO MODIFY THE EXCISE TAX ON PREMIUM CIGARS; TO EXTEND THE TIME TO COMPLETE AN ELIGIBLE PROJECT UNDER THE MILL REHABILITATION TAX CREDIT PROGRAM; TO LIMIT THE GROSS PREMIUMS TAX ON SURETY BONDS; TO PROVIDE TAX PARITY FOR SHORT-TERM VEHICLE RENTALS; TO GRADUATE LATE PAYMENT PENALTIES; AND TO CREATE A SEPARATE STATE NET LOSS CALCULATION FOR INDIVIDUAL INCOME TAX PURPOSES.
Intro. by Newton, Rabon, Daniel.

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Bill summary

Senate committee substitute to the 1st edition makes the following changes. 

Part I.

Revises the proposed changes to GS 105-228.90 to update the term Code as it applies to the general administration of taxation to mean the Internal Revenue Code as enacted as of April 1, 2021 (was, January 1, 2021).

Further amends and adds to GS 105-153.5(c2), modifying the required adjustments to an individual’s gross income, which are decoupled from federal requirements. Requires a taxpayer to add the amount of any expense deducted under the Code to the extent the expense is allocable to income that is either wholly excluded from gross income or wholly exempt from the taxes imposed by Part 2 of Article 4 (was, to the extent that payment of the expense results in forgiveness of a PPP loan under the federal Cares Act and the associated income is excluded from gross income under the same specified section of the Cares Act). Adds the following new provisions. For taxable years 2021 through 2025, requires a taxpayer to add the amount excluded from the taxpayer's gross income for the discharge of a student loan under the specified section of the Code in order to decouple from the exclusion from income for the discharge of a student loan under the specified section of the American Rescue Plan Act of 2021. For taxable year 2020, requires a taxpayer to add the amount excluded from the taxpayer's gross income for unemployment compensation received by the taxpayer under the specified section of the Code in order to decouple from the exclusion from income for unemployment compensation under the specified section of the American Rescue Plan Act of 2021.

Amends GS 105-130.5(a), which enumerate additions to federal taxable income in determining State corporate net income. Requires a taxpayer to add the amount of any expense deducted under the Code to the extent the expense is allocable to income that is either wholly excluded from gross income or wholly exempt from the taxes imposed by Part 1 of Article 4 (wa,s to the extent that payment of the expense results in forgiveness of a PPP loan under the federal Cares Act and the associated income is excluded from gross income under the same specified section of the Cares Act). 

Eliminates the provision of previous Part II, which deemed Extra Credit Grants and COVID-19 Recovery Rebates not to be considered income for purposes of determining a person's eligibility under the elderly or disabled property tax homestead exclusion of GS 105-277.1. Makes conforming organization changes.

Part II.

Makes organizational changes to include Subparts, placing the remaining content of the previous edition in Part II.

Revises and makes clarifying changes to the proposed changes to GS 105-241.6(b), regarding exceptions to the statute of limitations for individual tax refunds. No longer requires rather than permits the taxpayer to submit a written request to the Secretary seeking an extension prior to the statute of limitations. Provides for the previously proposed period of six months following the conclusion of the event which prevents timely filing to be subject to the Secretary of Revenue agreeing to the request.

Eliminates the proposed changes to GS 105-130.5(a), regarding additions to federal corporate income tax, and amending the Secretary's authority to adjust the net income of a corporation under GS 105-130.5A. 

Further amends the duties of a transporters of motor fuel by railroad tank car or transport truck under GS 105-449.115, and GS 105-449.115A regarding the duties of transporters and receivers of fuel by tank wagon. Now requires the person accepting delivery only if the destination state on the shipping document is NC, which includes if changed to NC in accordance with the provisions of each respective statute (previously prohibited from accepting delivery with any other state as the destination state). Adds to GS 105-449.115A, making a person who accepts delivery of motor fuel in violation of violation of the provisions of new subsection (b1) jointly and severally liable for any tax due on the fuel. 

Changes the effective date of the proposed changes to GS 105-278, regarding historic properties, from January 1, 2021, to June 19, 2020.

Adds the following new content.

Part III.

Makes the following changes to Part 1A, Article 4, which governs S Corporation income tax. 

Adds and defines a taxed S Corporation under GS 105-131 to mean an S Corporation for which a valid election for taxation under GS 105-131.1A, as enacted, is in effect.

Enacts GS 105-131.1A, authorizing an S Corporation to elect on its timely filed annual tax return to have income tax imposed on the S Corporation at the rate for individual income tax under GS 105-153.7 (currently set at 5.25% for taxable years beginning on or after January 1, 2019) for any taxable period covered by the return. Bars revocation of the election after the due date of the return including extensions. Provides for the tax to to be levied, collected, and paid annually. Establishes parameters for determining taxable income of a taxed S Corporation attributable to the State. Provides for a taxed S Corporation that qualifies for a credit to apply each shareholder's pro rata share of the credits against the shareholder's pro rata share of the income tax imposed. Requires the S Corporation to pass through to its shareholders any credit required to be taken in installments if the first installment was taken in a taxable period that the election under the statute was not in effect. Prohibits passing through credits allowed for any taxable period the S Corporation makes the election (including the carryforward of unused portions of such credit), or any subsequent installment of a credit required to be taken in installments after election is made (including the carryforward of unused portions of such installments). Provides for credit against income taxes imposed for income taxes imposed by and paid to another state or country, as specified. Provides for shareholders to deduct their pro rata share of income from the taxed S Corporation as provided under GS 105-153.5(c3)(1), as enacted, subject to the S Corporation's full payment of taxes due within the time allowed for filing the return and requires shareholders to make an addition for their pro rata share of loss from the taxed S Corporation as provided under GS 105-153.5(c3)(2), to the extent of inclusion in the taxed S Corporation's taxable income and the taxpayer's adjusted gross income. Details requirements for the taxed S Corporation to pay the full amount shown on the return within the time allowed for filing the return. Allows the S Corporation to request a refund for overpayment. Provides for collection of tax debt following proper notice by the Secretary of Revenue. Provides for the basis of shareholders of taxed S Corporations in their stock and indebtedness of the S Corporation to be determined as if the election had not been made. 

Makes conforming changes to GS 105-131.1, which exempts S Corporations from the income tax imposed on C Corporations under GS 105-130.3 and provides for income tax of S Corporation shareholders.

Amends GS 105-131.7 to make the general provisions for S Corporations regarding shareholder agreements and mandatory withholdings set forth in subsections (b) through (f) not applicable to taxed S Corporations. 

Adds taxed partnership and taxed S Corporation to the defined terms under GS 105-153.3, applicable to individual income tax provisions of Part 2 of Article 4. Adds and defines taxed pass-through entity to mean a taxed S Corporation or a taxed partnership.

Enacts GS 105-154.1, authorizing a partnership to elect on its timely filed annual tax return to have income tax imposed on the partnership at the rate for individual income tax under GS 105-153.7 (currently set at 5.25% for taxable years beginning on or after January 1, 2019) for any taxable period covered by the return. Excludes publicly traded partnerships or partnerships that have at any time in the taxable year had a partner that is not an individual, an estate, a trust, or an organization described in section 1361(c)(6) of the Code (concerning qualified trusts for employer bonus, pension, and profit-sharing plans). Enacts substantively identical provisions to those enacted in new GS 105-131.1A for taxed S Corporations, made applicable for taxed partnerships, except as follows. Provides distinguished parameters for the determination of taxable income of taxed partnerships attributable to the State. 

Amends GS 105-153.5, enacting new subsection (c3) to specify four adjustments that taxpayers must make to the taxpayer's adjusted gross income, providing for deduction for a taxpayer who is either a shareholder or partner of a taxed pass-through entity for the pro rata or distributive share of income from the respective entity to the extent it was included in the taxed entity's NC taxable income and the taxpayer's adjusted gross income; and an addition of the amount of the same described taxpayer's pro rata or distributive share of loss from the taxed pass-through entity to the extent it was included in the taxed entity's NC taxable income and the taxpayer's adjusted gross income. 

Amends GS 105-153.9 to disallow shareholders of taxed S Corporations or partners of a taxed partnership a credit for taxes paid by the taxed S Corporation or taxed partnership to another state or country on income that is taxed to the taxed S Corporation or taxed partnership. Deems the shareholder's pro rata share or the partner's distributive share of the income of the taxed pass-through entity to be treated as income taxed to the shareholder or partner under the Individual Income Tax Act, and a shareholder's pro rata share or partner's distributive share of the tax imposed on the taxed pass-through entity by election under new GS 105-131.1A or new GS 105-154.1 to be treated as tax imposed on the shareholder or partner under the Individual Income Tax Act (Part 2 of Article 4), for purposes of allowing the credit for taxes paid to another state or country by a taxed S Corporation's shareholders or a taxed partnership's partners. Entitles a taxed partnership to a credit for all such taxes paid. Makes conforming changes to GS 105-131.8 regarding shareholder income tax by a state that does not measure the income of S Corporation shareholders by the income of the S Corporation. Makes similar conforming changes to GS 105-154 regarding nonresident members. 

Amends GS 105-160.4 to disallow fiduciaries and beneficiaries of estates and trusts who are shareholders of a taxed S Corporation a credit for income taxes paid by the estates and trusts or by the taxed S Corporation to another state or country on income that is taxed to the taxed S Corporation; entitles the S Corporation to a credit under GS 105-153.9, as amended, for all such taxes paid. Establishes identical provisions regarding taxed partnerships; entitles the taxed partnership to a credit for all such taxes paid. 

Makes the requirements of Article 4C, which requires declarations of estimated corporate income tax and installment payments of estimated income tax, apply to taxed pass-through entities in the same manner as a taxed corporation under Article 4, except GS 105-163.41(d)(5) (regarding underpayment interest) does not apply to a taxable year of a taxed pass-through entity if it was not a taxed pass-through entity during the preceding year. 

Part IV.

Adds premium cigar to the defined terms set forth in GS 105-113.4, defined as a cigar that is hand rolled. Amends GS 105-113.4F, which governs delivery sales of tobacco products, to no longer exclude cigars from its scope; however, amends the definition of tobacco products as applied to the statute to exclude cigars that are not premium cigars. Makes the age verification requirements and filing requirement of the statute not apply to the delivery sales of premium cigars. 

Amends GS 105-113.35 to establish a cap on excise tax levied on a premium cigar at 30 cents of the cost price.

Effective for sales of premium cigars on or after January 1, 2022. 

Part V.

Amends GS 105-129.71(a1), which establishes a tax credit for eligible certified rehabilitated railroad stations, now defined to include a designated local landmark certified on or before September 1, 2020 (was, June 30, 2019), and is issued a certificate of occupancy on or before December 31, 2023 (was, December 31, 2021). Makes conforming changes to the credit installment provisions. Amends GS 105-129.75, extending the expiration of eligibility certifications under Article 3H from January 1, 2023, to January 1, 2025. Additionally, for credits allowed under GS 105-129.71(a1), requires the qualified rehabilitation expenditures to be incurred before January 1, 2024 (was, January 1, 2022), with the Article expiring and credits barred for rehabilitation projects not completed and placed in service prior to January 1, 2024 (was, January 1, 2022). 

Part VI.

Amends GS 105-228.5, regarding premium tax on surety bonds, adding the following specifications. Provides that gross premiums from business done in the State in the case of an insurer of bail bonds means the amounts received by an insurer from a surety bondsman during the calendar year for bail bonds written on behalf of the insurer. Subjects an insurer to the definitions of gross premiums under the statute for premiums from transacting any other line of insurance business. Defines terms by statutory cross-reference. Effective for taxable years beginning on or after January 1, 2022.

Part VII.

Makes the general tax rate of 4.75% set forth in GS 105-164.4 applicable to the gross receipts derived from a short-term motor vehicle rental by a peer-to-peer vehicle sharing facilitator. Makes conforming changes to GS 105-164.13. Adds and defines peer-to-peer vehicle sharing facilitator and short-term vehicle rental to GS 105-164.3. Defines short-term vehicle rental to mean a motor vehicle rental to the same period for a period less than 365 continuous days. 

Amends GS 105-187.1 to exclude a short-term vehicle rental by a peer-to-peer vehicle sharing facilitator from the term vehicle sharing service.

Amends GS 105-187.9 to provide for taxes collected at the rate of 5% and 8% under the Article 5A (NC Highway Use Tax) be credited to the Highway Fund (previously $10 million credited annually to the Highway Fund with the remainder credited to the General Fund). Maintains that taxes collected at a 3% tax rate are credited to the Highway Trust Fund. 

Enacts GS 105-164.44N to provide for the net proceeds of the tax collected on short-term motor vehicle rentals by a peer-to-peer vehicle sharing facilitator to be transferred within 75 days after the end of each fiscal year to the Highway Fund.

Applies to sales occurring on or after October 1, 2021.

Part VII.

Changes the penalties for failure to pay taxes due under GS 105-236 to require a 2% assessment of the amount of the tax if failure is for no more than one month, with an additional 2% for each additional month, or fraction thereof, during which the failure continues, with a 10% aggregate maximum assessment permitted (was, a flat 10% assessment for failure to pay taxes when due). Applies to penalties assessed on or after January 1, 2022.

Part IX.

Enacts GS 105-153.5A, permitting a taxpayer to carry forward a State net operating loss the taxpayer incurred in a prior taxable year and deduct it in the current taxable year. Establishes parameters for calculating a taxpayer's State net operating loss for a taxable year. Sets forth four limitations for the deduction. Details application to nonresident or part-year resident taxpayers. Provides for administration of the provisions, including required access to records for verification of the deduction amount. Allows for the portion of a taxpayer's federal net operating loss carryforward that was not absorbed in tax years beginning prior to January 1, 2021, to be included in the amount of a taxpayer's State net operating loss in taxable years beginning on or after January 1, 2021. Establishes limitations to the federal net operating loss carryforward permitted for a State net operating loss in tax years beginning after January 1, 2021. Makes conforming changes to GS 105-153.5. Effective for taxable years beginning on or after January 1,2021. 

Changes the act's long title.

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